Claiming VAT on non main business activities.

[Marian2017]

I just wanted to double check something my accountant told me. I have a VAT registered business but also became a landlord recently as I'm renting out an office owned by the company. I needed to do some repairs to it first but my accountant tells me I won't be able to claim the VAT back on those invoices as the rental income isn't my 'main' business (although the business will be paying 25% tax on it). I assume he's correct on this?

Thanks in advance.

 

[cremeegg]

VAT on property is very complex.

Are you charging the tenant VAT ? It can happen that you are required to charge VAT to the tenant and if the tenant is not VAT registered this can become a straight reduction in your rent.

So claiming VAT back on inputs might be a disaster. This is entirely aside from the 'main business issue'

 

[Ciru75]

It's not a matter of whether the rental is your 'main' business, it's whether you charge VAT on the rental that is important. You can only claim back VAT on spending that contributes to something that you charge VAT on. If you're not charging VAT on the rent, you can't claim back VAT spent on the property.

Landlords have an option to charge VAT on commercial letting. Your accountant will be best able to advise if this is a good idea, it's too complicated and potentially costly to go by the advice of randomers on the internet!

 

[dublin67]

Vat on property is complicated. I would also add that the one of the principles of Vat is Vat in - Vat out. In other words you can reclaim Vat on your purchases (typically called input credits) where you charge Vat on the outputs - typically sales but this would be rent in your case. There are many exceptions to this of course. Thus, if you are charging Vat on the rent you should be entitled to reclaim Vat arising on the costs of the property.

 

[Marian2017]

Thanks all. Yes, the accountant didn't explain the issue. He had advised me not to charge VAT on the rental but failed to mention that it meant VAT on costs couldn't be claimed. I couldn't find anything on the Revenue website relating to the 'main business' comment thus the question here.

Your accountant will be best able to advise if this is a good idea, it's too complicated and potentially costly to go by the advice of randomers on the internet!

Personally I've never found blind faith in the infallibility of accountants to be a wise thing. And you'd be amazed the useful information that can be gleaned from 'randomers on the internet'.

 

[T McGibney]

Thanks all. Yes, the accountant didn't explain the issue. He had advised me not to charge VAT on the rental but failed to mention that it meant VAT on costs couldn't be claimed. I couldn't find anything on the Revenue website relating to the 'main business' comment thus the question here.


Personally I've never found blind faith in the infallibility of accountants to be a wise thing. And you'd be amazed the useful information that can be gleaned from 'randomers on the internet'.

If you have blind faith in your accountant or believe that they are infallible, then the problem is with you, not them. That said, assuming you and your accountant have a good and positive relationship, they will usually know more about you and the specifics of your business affairs than practically anyone else and will be therefore best placed to give you optimal advice - which yours appears to have done here.

 

[cremeegg]

Landlords have an option to charge VAT on commercial letting. Your accountant will be best able to advise if this is a good idea, it's too complicated and potentially costly to go by the advice of randomers on the internet!

You may be required to charge VAT, it may be optional.

If it is optional it may seem advantageous to reclaim the VAT, but this can be a trap.

Will the tenant pay VAT on top of the rent ? The capital value of the premises may be affected.

 

[Purple]

Thanks all. Yes, the accountant didn't explain the issue. He had advised me not to charge VAT on the rental but failed to mention that it meant VAT on costs couldn't be claimed. I couldn't find anything on the Revenue website relating to the 'main business' comment thus the question here.

Your accountant may not be very good at explaining things but as with anyone you buy services from it is important that you ask the right questions and satisfy yourself that the advice you are getting is correct.

Personally I've never found blind faith in the infallibility of accountants to be a wise thing. And you'd be amazed the useful information that can be gleaned from 'randomers on the internet'.

Blind faith in anyone is a bad idea. Everyone is fallible and nobody is more interested in your business than you.
It's always a good idea to ask for the "why" when you are told something that you are unsure about. Some professionals may have a fragile ego but in my experience the good ones are happy to explain the reasons for the advice they give.